Dear Sen Kyl:

On behalf of the AGA member companies I want to express my concerns with the version of S. 627 that was reported from the Banking Committee on July 31, 2003.  As you know, the AGA is supportive of efforts to curb illegal Internet gambling, and I look forward to working with you to ensure that a fair and balanced legislative compromise is reached before adjournment of the 108^th Congress.

As you will recall from our meeting in your office on Monday, June 23, 2003 there are three tests that any Internet gambling legislation must meet to gain the support of the AGA.  First, the right of states to regulate gaming must be protected.  Secondly, any such legislation must not create competitive advantages or disadvantages between and among commercial casinos, Native American casinos, state lotteries and pari-mutuel wagering operations.  Thirdly, no form of gaming that currently is legal will be made illegal. 

My primary objection to the substitute measure offered during the Banking Committee mark-up is the deletion of subsection (ix).  Without this language the effect is to federally preempt the right of the states where we operate to regulate what historically has been a state-regulated business.  This carefully crafted provision survived a vote on the floor of the U.S. House of Representatives and was the product of countless hours of negotiations.  Although I understand that the Department of Justice interprets subsection (ix) to be an expansion of gambling, I believe that there are ways to address these concerns and to ensure that all interested parties are treated in an equitable manner.  This Department of Justice concern, which I believe is not well taken, easily can be remedied by replacing the original subsection (ix) contained in S. 627 with the following language:

(ix) any transaction with a business licensed or authorized by a state where the activity is lawful in all relevant jurisdictions.

or

(ix) any lawful transaction with a business that is authorized and licensed or regulated by the State in which the transaction is initiated and received.

The second objection of the AGA member companies is to the carve outs included in the substitute measure for Native American casinos and pari-mutuel wagering operations.  It is the view of the AGA that if enacted the substitute language would allow Native American casinos and pari-mutuel wagering operations to engage in activities that currently are interpreted by the Department of Justice to be in violation of existing federal statutes, in effect having the unintended consequence of expanding gambling on the Internet. 

The third objection is the exclusion of language from S. 627 to preserve the right of commercial casinos to continue the practice known as common pool wagering.  Currently, it is common practice for legal sports books in Nevada to take wagers on pari-mutuel contests, to include those wagers in a wagering pool established specifically for that contest, and to pay winning wagers out of that same pool.  The transmission of information in regard to common pools is a purely technical activity.  The practice has been deemed legal even when common pool wagering crosses state lines.  Language protecting common pool wagering has been included in virtually every Internet gambling bill introduced and has received an overwhelming vote of support by the full House in previous sessions of Congress.  Common pool wagering is an important business tool for many AGA members, and we see no valid reason for eliminating their ability to use this procedure.  The following language would protect common pool wagering without opening the doors to expanded Internet gambling:

1)      information concerning pari-mutuel pools that is exchanged exclusively between or among one or more racetracks or other pari-mutuel wagering facilities licensed by the State or approved by the foreign jurisdiction in which the facility is located, and one or more pari-mutuel wagering facilities licensed by the State or approved by the foreign jurisdiction in which the facility is located, if that information is used only to conduct common pool pari-mutuel pooling under applicable law;

2)      information exchanged exclusively between or among one or more racetracks or other pari-mutuel wagering facilities licensed by the State or approved by the foreign jurisdiction in which the facility is located, and a support service located in another State or foreign jurisdiction if the information is used only for processing bets or wagers made with that facility under applicable law.

3)      information exchanged exclusively between or among one or more wagering facilities that are licensed and regulated by the State in which each facility is located, and any support service, wherever located, if the information is used only for the pooling or processing of bets or wagers made by or with the facility or facilities under each State’s applicable law;

With these changes to the original version of S. 627 the AGA could support the legislation.  Another way this legislative impasse could be resolved would be to substitute the text of H.R. 2143 for the amended S. 627.  As you know, H.R. 2143 passed the House of Representatives with an overwhelming majority, and with the addition of the aforementioned fix to subsection (ix), Department of Justice concerns should be met. 

I would be pleased to discuss these concerns in person or by phone as you deem appropriate.  I look forward to working with you to enact appropriately drafted Internet gambling legislation.

Sincerely,

Frank J. Fahrenkopf Jr.